February 27, 2010

Will capitalism lead to socialism eventually?

I was asked this question in an interview a year ago. Today morning when I rethought about it, I came up with a more concrete answer now.

No, I don’t think capitalism will ever lead to socialism, as long as the form of human beings remain the same, and there is no extreme and catastrophic events such as technological singularity which by and large render this question meaningless.

For one thing, socialism is grounded on the belief that one day there will be sufficient resources for everyone to enjoy without working. First of all, by sufficient we mean that every human being can consume as much as they want, and that indicates, as the principle of diminishing marginal utility implies, the consumption of every good has reached a level where its marginal utility is zero (so that no one would want to consume anymore; imagine you probably won’t eat a tenth hamburger in a row even if you are paid to). That will probably come true one day for industrial goods like food and clothes. But that is generally not possible for goods whose stock is limited in the natural world and cannot be produced manually due to limitation by the law of nature, such as gold and diamond. Since people cannot all have enough of gold (and not even close to enough), people who have gold will treasure it and demand clearly defined property right, which is a fundamental characteristic of capitalism.

For another thing, besides goods, there are services that can only be provided by human beings to meet a certain standard. In these professions, simply the notion of service by machines, even as competent as humans in accomplishing the job, would render the service two-bit or sometimes worthless. Examples are education, R&D, massage, prostitution, etc. Since there is a demand for these services, there has to be property right to provide ways to pay for these services.

Update on 4/28/2010: I read this article by Jonah Goldberg about capitalism and socialism and find it interesting. “Socialism is a system based upon an assumption about human nature that simply isn’t true.”